In 2022, Kenya was among seven countries picked to pilot the African Continental Free Trade Area (AfCFTA), which sought to unlock the movement of goods and services in the continent.
Also selected are Tanzania, Tunisia, Cameroon, Egypt, Mauritius, and Ghana.
AfCFTA’s main goal is to bring down barriers in trading, specifically tariffs and import quotas, encourage the free trade of goods and services, boost intellectual property protection, expand opportunities for exporters, fair treatment for investors and enhanced opportunities for local firms to compete for foreign government procurements.
The agreement is expected to stimulate demand for intra-African food imports and expand access to markets at the regional and international levels.
According to the World Bank, the pact will boost regional income by seven percent or $450 billion, speed up wage growth for youth, women and persons with disabilities as well as lift 30 million people out of extreme poverty by 2035.
Kenya’s exports as a percentage of the gross domestic product have been gradually falling, from 24 percent in 2011 to 10.7 percent in 2021 and 20.7 percent in 2022.
Earnings from exports grew by 17.4 per cent to Sh873.1 billion in 2022. However, the growth in exports was not sufficient to offset the rise in imports, resulting in the widening of the balance of trade deficit to Sh1,617.6 billion in 2022.
Kenyan exporters face difficulties such as meeting international standards in certain markets, the lack of trade-related infrastructure including flights and a lack of capabilities or productivity.
For Kenya to gain the full potential of AfcFTA, it must increase its export capacity in both diversity and quality of manufacturing through vertical integration of industries, ensure a stable and secure environment for businesses to operate, ensure adequate and efficient transportation, strong logistics infrastructure, shortened regulatory procedures and expedited customs processes.
The country must also increase its trade in sugar, vegetables, fruit, nuts, beverages, and dairy products and strengthen its edge by investing in human capital and equipping its youth with the skills to engage in skill-intensive manufacturing.
The exports (both goods and services) must exhibit sufficient competitiveness, sophistication or efficiency to act as a backbone of productive activities for industry, manufacturing and agriculture.
To effectively move into high-value global supply chains, the state must strategically design and target incentives that encourage entrepreneurs to move into economic activities with the potential to drive value addition and structural change.
The state should provide technical and financing support to micro, small and medium-sized enterprises in value chains and firms producing the identified promising export products; support the development of market- and product-specific standards and facilitate investment.
Through the bottom-up economic model, the regime must build the capacity of firms, particularly MSMEs to comply with high-quality standards and to obtain the related certifications against internationally recognized standards such as Good Manufacturing Practices (GMP) and various ISO standards.
Policymakers must shift away from traditional commodity-led models for industrialization and instead review regulations which stifle investment and undermine the scalability of small and medium-sized enterprises (SMEs).
